An Essential Inventory Management Guide for
Small Businesses

What is Inventory Management?

Inventory management is a process of maintaining a strong inventory that can sufficiently meet the demands at all times. Efficient inventory management can help businesses mitigate the costs of storing excess products. It also ensures that the inventory is fully capable of meeting the current demands as well as the future trends.

Every business faces fluctuations in their sales, and hence needs a supply chain that can adjust the production. With effective inventory management, companies can track their inventory levels in real-time, and move swiftly to ramp the production up or down.

Many businesses, while starting out, adopt an ad-hoc approach to inventory management. From spreadsheets to physical ledgers & daily status reports, the data is scattered across multiple channels. But as the business flourishes, making sense of all this information becomes nerve-wracking.

A powerful inventory management tool like DEAR Systems rids the companies of this menace. It streamlines their inventory operations and gives them a birds-eye view of the entire supply chain.

Inventory Management For Small Businesses

Over the years, most large-sized companies have warmed up to the idea of employing cutting-edge inventory management systems. With the sheer number of products that they move and their profit margins, it made sense for them to use the tools that can help them in the long run, albeit at a slightly higher initial cost.

However, one of the biggest fallacies of our times is that inventory management tools are only suited for large-scale companies. Today, there is enough data to show that smaller companies in fact stand to gain a lot more by streamlining their operations using the latest technology.

One of the biggest reasons why inventory management is crucial for smaller companies is that they get hit the hardest due to the costs of carrying excess inventory. They also cannot afford to miss out on important orders simply because they do not have enough stock in their warehouses.

Additionally, many small businesses are involved in the sales of products that are seasonal. To run a lean inventory for such a business, you don’t want to find yourself reacting too late to the change in demand. With inventory management software, you can churn your inventory data and create reports that go a long way in predicting future trends.

As a small business owner, seek out inventory management software that is cost-effective and tailor-made to suit your needs. With a powerful henchman like the inventory management software from DEAR Systems, your business is poised for success.

Common Small Business Inventory Management Mistakes

Inventory management is both- an art and a science. Businesses that start small often have a hard time keeping up with their inventory management due to multiple factors.

Here are some of the most common inventory management mistakes that small business owners commit:

Spread Across The Spreadsheets

Here’s the thing with spreadsheets. After a point, it becomes increasingly difficult to decrypt them. Businesses scaling up often find themselves entangled in multiple spreadsheets that restrict their decision-making prowess and limit their efficiency.

Although spreadsheets do come with a little bit of automation support, it’s impossible to automate the entire inventory process. And so, you find yourself manually updating the sheets more often than not.

Compare this with a powerful inventory management software that allows you to automate some of the most redundant tasks, freeing up your time and allowing you to channel the energy into more meaningful activities.

What’s more? It also revolutionizes data representation. You no longer have to stare at sheets, trying to make sense of them. The software analyses the data for you and prepares a variety of reports that are a lot more accurate and easy to understand.

Uniform Stock Levels

If your inventory levels aren’t a function of your sales, your inventory will either be overstocked or understocked. The number of products in an inventory should always depend on your expected sales numbers.

Consistently keeping a uniform inventory may not always work out. Be as dynamic with the process as possible. Consider factors such as demand, shelf life, profitability, and return orders before determining your inventory levels.

An inventory management tool worth it’s salt can help you handle all these activities without breaking the bank.

Irregular Inventory Maintenance

The health of your inventory will reflect on your sales in the long run. Businesses that ignore regular check-ups and maintenance of their inventory tracking systems often run into problems with no prior warning.

At all times, your inventory should be fully accounted for. Any mismatch between your physical inventory and the numbers in your tracking system can have serious consequences if left unchecked.

It’s always a good practice to schedule regular inventory check-ups and carry them out religiously, even though it may seem redundant at times.

Ignoring Inventory Shrinkage

Inventory shrinkage refers to the loss of products in an inventory due to factors such as expiry, bad weather conditions, defects during transportation, etc. Shrinkage is a reality that has to be dealt with by keeping regular checks on it.

Companies that don’t take shrinkage into account are likely to oversell their inventory. In other words, they will sell products that they can’t deliver because many of those products are rendered obsolete or unfit to be sold due to shrinkage.

This results in cancellation of orders, which leads to distraught customers, all of which can be avoided by monitoring the shrinkage.

Lack of Dynamic Pricing

Stock clearance is one of the most important ingredients to maintain a healthy inventory. Your prices should be reflective of the demand for the products in the market. Jack them up too high and you run the risk of not getting enough sales. Short them too low and you may miss out on some well-earned profit margins.

The key is to keep one eye on the market and another on your inventory costs. If you’re able to walk this tightrope, you’ll be able to run your inventory like a pro.

How Does Inventory Management Work For Small Business

As a small business, inventory management is an intuitive process that slowly evolves into a challenge. Generally, they are more focused on production and marketing as these areas pose most challenges in the younger days of an organization. As it matures, most of these troubles are sorted out and with growing sales, inventory management, and warehousing start displaying their inherent complexities. 

If you are one of those small businesses that have successfully scaled up their operations to a stage where managing your raw materials, semi-finished parts, and ready-to-ship products has started to drain an increasing amount of time and resources, you’re at the right spot. Today, we will make a deep dive into inventory management for small businesses.

Why Is Inventory Management A Challenge For Small Businesses

Simply put, inventory management refers to controlling the storage and usage of all items finished and unfinished. This is supported by cyber-physical systems, and it plays a pivotal role in an organization’s success. For SMBs, when they are done with the bottlenecks in production and have promising sales figures, managing inventory becomes a big challenge. 

Small businesses approach it with the archaic paper-pen-calculator method or with the help of spreadsheets. These are temporary solutions as they allow one to manually record the incoming and outgoing stock along with minimal data regarding the items. 

Some of the common indicators of needing a proper approach to inventory management are:

• You are constantly running out of stock
• You are not sure about the current stock levels
• There is hardly any credible data available with regard to how long an item has been stored or their current location in your warehouse
• How frequently you are able to replace your entire inventory
• You are facing situations where stored goods aren’t fit for consumption in production
• You are finding it difficult to store products and retrieve them on time
• Packing and shipping is one of the major supply chain bottlenecks

If any of these problems sound similar to you, it’s time you upgrade to a proper inventory management solution for your small business.

Small business inventory management is quite simple as you only need to track various pieces of information regarding the items stored. This includes the QA checks when receiving them, the vendor, batch number, quantity, current location in your warehouse, storage directions, and how long they stay there before getting replaced. You will need proper inventory management software combined with equipment like barcode scanners-printers.

How To Implement Inventory Management As A Small Business

In this section, we will see how you can implement industry-grade inventory management in simple steps. Remember, even if you feel confident with the way you are handling your inventory currently, it won’t take too long before things turn clumsy. 

Also, you will need to lay down the best practices in your organization’s early days as your existing methods will continue to evolve as you grow. Let’s have a look at the steps that help manage inventory for small businesses:

Run A Vendor Audit

The first step to implementing small business inventory software is running a vendor audit. You should begin by sorting vendors and suppliers based on the products sourced. The product name, its SKU for your company, descriptions, costs at various buying quantities, selling prices, reorder levels, and lead times. 

You will have to input these details along with product photographs in the software, and based on this, it will help you with operating insights. You will also need to input the vendor company details, the contact person’s details, payment, and delivery conditions, and billing cycle data.

Based on these insights, you can identify the vendors who could be posing as potential bottlenecks for your production line and communicate the working terms explicitly. It is recommended to ink proper SLAs and NDAs to safeguard mutual interests.

Streamline Ordering Process

Next, you need to streamline the ordering process by evaluating your consumption, storage capability, reorder levels, and lead times. You will also need to consider economic order quantities for various items to get a better view of the situation. Begin with creating proper purchase orders with fulfillment conditions clearly mentioned. 

Getting the delivery early or late can derail the operations on your end, causing financial backlashes. Thus, computer-generated Purchase Orders can provide you with greater visibility regarding the goods procured as you integrate your ordering system with your accounting software.

Implement Proper QA And Stock Receiving Protocol

When receiving shipments from your vendors and suppliers, you should implement proper QA protocols to ensure that the items are received in predefined conditions. This includes conducting random checks and verifying the shipping label details with the labels on individual cartoons. If your business requires further checking that involves destructive or non-destructive testing, the same should be performed before accepting the delivery. 

Once the shipment is verified for compliance to your quality standards, you can confirm the delivery and sign the documents. In case you are reselling them directly, you can perform cross-docking. When transferring the stock to your warehouse, you should re-label it to match your SKUs and internal identification methods. Mostly, this is done using barcodes generated by your inventory management solution. 

It will mark the date of receipt, batch details, and exact storage location. Thus, you will be able to trace the stored goods whenever required using this data. In case of damage or theft, you will be able to fetch data quickly to take preventive measures.

Perform Inventory Counting

With inventory management software, small businesses can get updated status reports for each item in their inventory as it updates the figures every time an item moves in or out. However, it is necessary to conduct physical inventory counting as many items may get damaged during the storage while theft and misplacing them are equally common problems 

This can be approached in many ways but the most widely used methods are cycle counting and ABC analysis. We recommend performing ABC analysis as it allows you to focus better on your priorities without having a huge staff. 

You will be required to verify the item location, quantity, and storage conditions in order to gather holistic insights into the storage process. A barcode scanner or mobile app comes in handy in this process. At the end of the accounting period, you will be required to reconcile your inventory and run a proper analysis to understand how you can operate better.

For instance, any deviation from your industry’s inventory turnover ratio should be sorted out unless it is a part of your business strategy. If you are not able to store items that can generate more revenue due to other goods blocking your storage area, you can consider purchasing them on a just-in-time basis. 

All of these processes go hand in hand with inventory management software implementation and it’s necessary that you feed past data as accurately as you can. This will help you automate the mundane functions like keeping an eye on the stock levels and reordering at the right time. 

Also, you might want to focus on developing relations with your vendors to help improve your sourcing process. When implemented, it will also help you with functions like sales forecasting and giving you insights into production based on your consumption patterns. Inventory management is all about how you comply with the operational best practices and record data accurately. 

You can be truly successful at it only if you are willing to work on smaller processes to create an orchestrated effect for your small business’ inventory management.

Despite most small businesses leaving inventory management to sheer intuition and spreadsheets, it is one of the core areas that can boost their profitability. Good inventory management is a combination of implementing best practices across all concerned processes and minimizing loopholes.

An inventory management software will not only help you with automated record keeping and automating clerical processes but also helps implement compliance for operations best practices. We hope this article adds to your understanding of how inventory management works for small businesses.

Do small businesses need barcoding: what it is and why it is important

Managing the inventory is a crucial task, whether it’s a small business or a vast enterprise. You need to manage, monitor, and secure inventory appropriately. A Barcode system assists you in managing all of your inventory in the best possible way. Also, it will help you in saving a lot of time and money in all of the business areas.

What is barcode

Have you ever wondered what a barcode is and what’s its use? 

The answer is easy to understand: a barcode is a data representation method in a visual and machine-readable format. Barcodes are identified by altering the widths and spacing of the parallel lines. Barcodes were invented in 1949.

Some quick facts about barcodes

• Barcode scanner checks products faster through automation. 
• Allows you to change the pricing without much effort by making a change in the software, reflecting immediately.
• Re-order the same product for a new batch for your merchant just by entering the required quantity.
• Easy tracking sent invoices and received payment from the customers.

Key benefits of barcoding in small businesses

• The best thing about a barcode is that it saves a lot of time.
• It can reduce the number of errors in any inventory record.
• Decrease in the number of missing sales, over and under scale inventory, directly impacting your business’s profit and growth. 
• It helps you operate in real-time inventory movements that will help you manage the supply chain right from the raw materials to their arrival at the final distribution center of the products.
• The real-time barcode inventory management system gives you complete control over all the records. In addition, it permits the approval of cost at every stage, making it simple for the accounting and tax reporting. 
• It comes up with many risk management strategies in small and medium-sized businesses, decreasing the administrative burden.

Importance of barcode for small businesses

Reduced risks of errors

Barcodes help reduce any kind of risks of errors. However, manual data entry in computer systems is not a good idea for maintaining accurate data. 

Inaccuracy occurs when wrong keys get pressed by mistake while entering other important data or tracking a product. Barcode systems eliminate such manual entry risks and helps in reducing undesired errors.

There remains no need for manual entries with a barcode scanner as everything gets done automatically just by scanning the barcode.

Less operational cost

The immense popularity of barcodes has reduced the overall cost required for the equipment. It is a kind of only one-time investment that involves buying machines and equipment. After that, only the cost of maintenance, repairing, and managing needed. It will benefit you in the long run by offering accurate data for re-evaluating the overall expenses.

Saves time

At the time when you are entering all the data manually then it takes a lot of time. Living in the technology-based world, adopting technologies and software eliminates redundancies saving a lot of time. With barcoding, you can save a lot of time by avoiding manual data entries as it just scans the barcode tag, and all gets done.

Easy inventory tracking

The most significant use of barcodes is in inventory management rather than in point-of-sale transactions. As all the products contain a UPC, it becomes super easy for retail store owners to track the required inventory in the warehouse and store shelves. Therefore, it is imperative to know the correct location and item quality in the supply chain. Looking after your investments, you can build a secure future for your business, and the employees can trust you without having any doubts.

Simple pricing update

When changes in the pricing occur, it creates a big headache like how to penalize it, implement it, fix things per new pricing, and more. Also, it becomes a long, time-consuming, and effortful process having the price tags attached to the products. 

Using barcodes, you can get the price displayed on the product shelf on the barcode tag itself. It will require less time and less effort for changing the cost of each item whenever required. Once the price on the barcode gets changed, it will affect the whole barcode database.

Effortless inventory management

Apart from tracking inventory, barcode helps in managing the whole stock without many efforts. The other activities include scheduling maintenance of machinery, details addition, the record of the life of shelf of equipment and tools, etc. A Barcode system is constructed for handling all such things without any help hence improving business profits.

Simple accounting

The Barcode system is also responsible for fulfilling all the requirements of accounting. In addition, it assists you in updating data of all the manufacturing units’ data until the distribution units in simple ways, i.e., from equipment maintenance to the updation of pricing tags and details. You will get a sum of all the details and data just by scanning the barcode asset tags. Hence it makes your overall account efficient and straightforward to maintain.

How to Organize Your Inventory

An efficient inventory is a crux for running a successful product-based business. Whether you’re a technology company or a toy manufacturer, your business is much more likely to thrive if your inventory is in good shape.

This is true especially in the case of small businesses that are the modern-day Davids against the Goliaths. When you’re operating on a lean cash flow, a penny saved is more than a penny earned.

Inventory management is both- an art and a science, the secret to which lies in knowing how to organize the inventory. Listed below are some key steps that will help you organize your inventory and make the most out of your resources.

Systematically Arrange Product and Vendor Information

Have you ever thought about how to organize inventory for small businesses? Read the below information to get a complete understanding of it. 

You can organize your inventory by setting up the stock and all the supplier information in a secure and accessible manner. Different types of businesses have different methods of managing their inventory. 

For example, some use manual tracking ways like spreadsheets, and retailers make use of point-of-sale systems. On the other hand, e-commerce businesses use order management systems. If you are using a POS system, you will require recording product-specific information and all the details from the suppliers.

The set of information is listed below – 

• Name of the product 
• Internal product stock keeping unit number or code 
• Short description 
• Identifiers 
• Product category, class, or family
• Regular retail price 
• Wholesale cost
• Selling price
• Colors and sizes
• Reordering quantities 
• Product image 
• All the details of shipping like weight, box pack, etc

Apart from the product-oriented information, it is vital to track all the information of the vendor or supplier. Therefore, most POS inventory systems consist of different vendor directory features to save contact information and tie all the products to a particular vendor. 

The supplier information that you need for tracking covers 

• Name of the vendor 
• Contact Name of the vendor 
• Billing information of the vendor
• Phone number of the vendor 
• Payment terms 
• Contact information of the showroom

Generate Accurate Purchase Orders

POs (Purchase Orders) are the simplest method for managing your inventory buying. You can track every stock buying most efficiently, i.e., from placing an order to getting the shipment at your place and until the bill payment. 

Purchase orders are financial transactions. That’s why you need to create purchase orders so that you can review your cash flow and forecast your stock requirements. 

Purchase orders electronically get submitted to vendors via email or the online ordering portal of the vendors. Most of the POS systems hold directory features for handling all the contact information of the vendor. 

Also, POS systems have low-stock alerts that allow you to know when an inventory item gets transferred to the designated minimum threshold. These low-stock alerts get to turn into a full report that will reveal to you what items require reordering.

Accurately Receive Stock Shipments

Optimize Your Receiving Space

Your receiving space is the gateway to your inventory. It is also the place that is likely to witness many inventory mishaps if managed incorrectly.

Warehouse space is at a premium these days, and the cost of under-utilizing your warehouse adds up quickly. The following space-saving tips will help you optimize your warehouse space, improve efficiency and decrease costs.

Therefore, businesses that intend to run efficient inventories should focus on optimizing their product unloading and receiving operations. Ensure that you’re using the right technology and inventory management techniques.

Keep Your Receiving Space Clean and Organized

Once you’ve got your receiving process sorted, your focus should be on ensuring that it stays organized round the clock. For this, you can set up routine cleaning and maintenance of the space, and closely monitor all the metrics.

Decluttering your inventory will lead to increased efficiency.

Track Your Inventory In Real-Time

Real-time inventory tracking enables you to monitor your inventory levels and fix anomalies before they turn into bigger problems. Spreadsheets that need to be updated manually cannot be used to monitor inventories effectively.

A powerful inventory management system is the best tool to implement real-time inventory tracking across all your warehouses.

Monitor Quality Control

Quality Control mechanisms should be put in place so that necessary checks and balances are applied across the inventory.

Inefficient workers and faulty technology should be identified immediately before they cause serious damage to the business.

Optimizing Your Unloading Process

Your unloading process should be designed taking into consideration the properties of your products. It’s advisable to adopt a two-pronged approach that focuses on speed as well as safety.

A variety of equipment is available, from hydraulic cranes to conveyor belts that can help you unload and store your products efficiently.

How To Label Inventory Items?

Inventory tags and labels play a huge role in effective inventory management. Labeling your inventory makes all your products very easy to locate. If your labels have barcodes or QR codes on them, you can easily sort your inventory with the help of inventory management software.

These codes can carry a range of information such as the price of the item as well as size, color, and other details. Inventory tags make the sorting process much more efficient and speed up the checkout times.

When you’re selecting the type of labels that you’ll attach to your products, keep in mind some of these key factors:

• Temperature, humidity, and other climatic factors of your warehouse.
• Dimensions and material quality of your product packaging.
• Wear and tear that your product packaging may have to go through during transportation.

Once you’ve selected the labels to be used for your inventory, the next step is to decide how and when they should be attached to your products. Experts say that the right time to tag all your products is as soon as you receive them.

When you tag your products immediately after you receive them, you ensure that all your stored inventory is accounted for. This goes a long way in improving your shrinkage rates and the overall efficiency of your inventory.

To further increase the efficiency of your inventory, you can create labels for specific locations as well. These inventory location labels will help your team get to their destination quicker and reduce the average checkout time significantly.

What are Asset Labels?

Asset labels are tags that are attached to inventory assets or products. These labels carry unique barcode numbers that throw up all the relevant information related to the respective product when scanned using the RFID or Barcode scanner connected to the POS system.

These tags play an important role in monitoring the movement of all the products via a centralized asset management system. Most inventory tracking systems have their own asset management module where inventory managers can locate any product inside the inventory and determine its last known status.

Asset labels can use barcodes, QR codes, alphanumeric codes, and even RFID tags. They act as a unique id for the product that they’re attached to.

What is the inventory cycle count?

Inventory cycle counting is a process of keeping tabs on your inventory by only checking a small part of it rather than the entire inventory. Companies prefer conducting cycle counts rather than traditional inventory counts because the former allows them to keep the inventory operations running, while with the latter, the inventory operations come to a halt during the process.

Inventory cycle count procedures

There are various types and subtypes of inventory cycle count procedures. The key types include:

• ABC analysis cycle counting
• Process control group cycle counting
• Opportunity-based cycle counting

ABC Analysis Cycle Counting

ABC analysis is perhaps the most popular type of inventory cycle counting. The phrase “ABC” refers to different classes assigned to different items of their inventory. These classes are assigned on the basis of specific factors.

Normally, items assigned to ‘Class A’ are counted most frequently, while those assigned to ‘Class C’ are assigned least frequently.

There are different factors that play a role in determining how the items are assigned their respective classes. Based on these factors, ABC analysis is divided into three subcategories

Pareto Principle-Based ABC Analysis

According to the Pareto principle, 80% of the inventory outcomes are caused by 20% of the incidents. The Pareto principle-based ABC analysis takes inspiration from this and assigns the highest importance to items with the biggest impact potential.

The value of an item is the best gauge to measure its impact on the inventory. For this analysis, the value is measured by multiplying the cost of the item by its usage per period.

One of the key advantages of this method is that items that have the biggest potential to impair the inventory are counted most frequently. However, it’s also a double-edged sword. Since the focus is mostly on the big-ticket items, accounting errors for the smaller items can go unnoticed for a longer duration.

Usage-Based ABC Analysis

Usage-based ABC analysis uses the logic of the correlation between inventory movement and accounting errors. It works on the principle that the products that are moved around the most are also most likely to go missing.

Based on this approach, items that are ordered the most are assigned ‘Class A’. They will be counted most often even if they aren’t necessarily big-ticket products. Similarly, items that are ordered the least, and hence moved around the least, are assigned ‘Class C’.

An advantage of this method is that the items that are most likely to be lost are counted most frequently. This increases the efficiency of the operations and also improves customer experience since these items are also ordered the most.

However, one of the biggest drawbacks of this method is that some of the high-value items aren’t counted as frequently as they should be, because they’re ordered less frequently. In case of any slippage, the financial fallout can be huge for the company.

Hybrid ABC Analysis

Hybrid ABC analysis combines the best elements of the Pareto Principle-based and Usage-based counting methods. It also has some room to make ad-hoc, pragmatic decisions by experienced inventory managers.

Initially, the Pareto Principle is invoked to determine the products that bring the most value to the inventory. Once the data is in, inventory specialists take a look at the classification and can make a few changes to it based on the situation.

The biggest advantage of implementing a hybrid approach is that you’re not relying too much on statistics, and at the same time it’s not all swinging in the dark.

Process Control Cycle Counting

Process Control Cycle Counting is an inventory counting method that allows the counters to select the sections of the inventory that they want to audit. Counters can take this decision by studying which areas have had the most discrepancies historically and focus singularly on those items.

This method has often been called controversial and biased because it is up to the counters to decide the portion of inventory that is to be counted. This may lead to the counters selecting the portion that can be counted easily, ignoring the parts where most of the heavy lifting is needed.

However, contrary to these reservations, this method has been found extremely effective practically. It is seen that items that need the most attention are counted most often. The bias is inherently constructive since the companies also want to focus on those sections in the first place.

Opportunity-based Cycle Counting

In this method, the items are audited at certain checkpoints during the entire inventory cycle. These checkpoints provide an automatic opportunity for the company to audit the items, and hence the method is known as opportunity-based cycle counting.

Counting Inventory Using a Manual System

Small businesses with minimal inventory often use manual tools for periodic inventory audits. These are some of the ways in which you can count your inventory manually.

Pen and Paper

The most common of all manual counting methods is a simple notebook with a list of all the items in your inventory. Simply note down the inventory items periodically, and keep making changes to the numbers whenever you make a sale.

Additionally, if you also produce the items yourself, make a similar list for all the raw materials as well. Make sure to keep both lists separate.

Use a Spreadsheet

Spreadsheets are a slightly more advanced method to count your inventory manually. Instead of making entries in your notebook, you can prepare an Excel or Google spreadsheet and update it regularly.

The biggest advantage this has over pen and paper is that all the data is stored digitally. With spreadsheets, you can also run many basic calculations to get an analysis of your audits.

Limitations of Manual Inventory Count

Physical Counting

Perhaps the biggest limitation of manual counting is that you have to take physical inventory counts, day after day, every single time. This activity is extremely important to keep your inventory in sound health. However, it’s also equally redundant and can be automated just as easily using a reliable inventory management system.

Moreover, taking physical inventory counts opens up your inventory to a range of vulnerabilities. The most common of them is irregular counting due to uncertainties with labor. Your resources may have to be employed elsewhere, and inventory counting can often take a backseat.

Apart from this, physically counting the inventory may also lead to many types of counting errors, something that can be avoided using automated inventory counting systems.

Communication Gap

When you’re managing your inventory manually, you have to make physical notes of all the key information and numbers. As your company grows and you hire more employees to help you with your inventory, it becomes difficult to maintain a physical ledger.

For example, one of your inventory workers makes an entry in his notebook or spreadsheet as soon as you take receipt of the stock. However, he forgets to inform the rest of the team about this, and so their ledgers remain unchanged. They may think the item is still out of stock, and refuse multiple sales orders, while the item has already been replenished and is sitting tight in your inventory, ready to be dispatched.

Such communication gaps and the subsequent loss of revenue due to them are a common occurrence with manual inventory counting. They can prove to be disastrous for any business in the long run.

Manual Orders

Inventory replenishment is one of the most crucial aspects of running a business. When you’re keeping a physical inventory count, you have to closely monitor your inventory levels for all the products.

However, not all the products have the same demand and shelf life. Some products may even take longer to reach your warehouse than others that can be ordered on short notice. Managing your stock levels physically becomes extremely complicated as your inventory grows and diversifies.

An inventory management system can easily track your inventory levels and even send out orders for replenishment once a certain threshold has been broken. You can set individual trigger points for all the products and the software will automatically remind you when it’s time to replenish them.

Counting Inventory Using a POS System

Here is a stepwise guide to counting your inventory using a POS system:

Organize your existing inventory

When you’re shifting to a POS-based inventory counting system, it’s always advisable to organize your inventory accurately before jumping in. Doing so will ensure that the system will have adequate data to structure your inventory the way you want.

While doing this, keep in mind to add as many details about the product as possible. Even if some of the details are seemingly obvious, they can turn out to be extremely crucial in the future.

Assign unique IDs to your products

Once you’ve reorganized your inventory, and added all the details about your products along with short descriptions for all of them, it’s time to ID them.

You can do this by assigning stock-keeping unit (SKU) numbers to your products, depending on where they’ve been stored. This makes it simpler for the POS system to locate the items.

Upload The Data To Your POS System

Once you’ve ID’ed your inventory, the next step is to upload the entire data to your POS system. You can do this by checking the guide provided by the software company.

Most of the POS systems allow users to upload data using the CSV file format. If your software is compatible with CSV files, you can save your spreadsheets in the same format and upload them directly to your POS software.

You can also manually feed the data into your POS software, but it’s not advisable to do so. Manually entering the data is highly inefficient and also prone to human error.

Once you’ve uploaded your data, your POS software will automatically show your entire inventory along with the latest numbers. You can pick a sample and verify the data just to check if the numbers add up.

Once you’ve performed the necessary checks, your POS-based inventory is ready to go.

Reconciling Inventory Differences: A 5 steps Guide

When talking about inventory management, one of the biggest challenges before any organization is reconciling inventory differences during auditing. In today’s fast-paced ecommerce world, almost every business faces high fluctuations in its inventory level. 

On top of that, the increasing number of SKUs is also posing quite a challenge in terms of managing the accuracy of records. Thus, conducting a physical count of the items stored in your warehouse is a must to keep operations on track. 

It also helps to keep a tab on inventory theft, one of the major risks borne by every business dealing in physical products. In today’s article, we will have a look at the process which you can follow for performing inventory reconciliation systematically. Let’s get started.

What Is Meant By Inventory Reconciliation

Put simply; inventory reconciliation is the process of conducting a physical count of the items stored in your warehouses and verifying the quantity against your inventory records. This, of course, requires the counted items to be in a usable state until used in production or shipped. 

This exercise helps limit stock discrepancies and helps trace the reasons behind the occurrence of such discrepancies. When reconciling inventory, our aim is to minimize any discrepancies and the instances when we need to write off our inventory due to known and unknown reasons. 

Absolute elimination of discrepancies may not be possible for most industries, and hence, it is approached as an exercise undertaken for optimizing organizational efficiency.

In the next section, we will have a look at the step-by-step process for inventory reconciliation.

Step-By-Step Process To Perform Inventory Reconciliation

As a small business, reconciling your inventory can be tricky since most of the SMBs operate in an intuitive manner as far as their early days are concerned. If you are performing it for the first time, it is preferable to take extra care while doing so. This will help reduce errors and help you learn how to conduct the process better next time.

Also, we recommend our readers conduct inventory reconciliation on a periodic basis during the slack phases of your industry to reduce the impact on your business. Now, let us have a look at the steps to be followed when conducting inventory reconciliation:

Conduct A Physical Count Of Your Stock

First of all, you should develop a plan that will help you physically count each item lying in your warehouse in the minimum possible time. Then, based on your understanding, you should allocate enough resources for the process. Also, you should assign a senior team member of your organization for every four to five employees assigned for manual counting. 

It helps maintain the accuracy of the inventory counting process as they supervise all activities. Moreover, the entire process requires you to stop all inflow and outflow of stock, so keep that in mind. You will need complete isolation, so it is advisable to perform the counting process in a timeframe that doesn’t impact your regular business. 

You can choose any stock control method among ABC analysis, LIFO, FIFO, average weighted cost (AWC,) ad hoc counting, or cycle counting depending on your business model and preferences. 

Verifying The Physical Count Results Against Your Inventory Records

The next step is to verify the results with your inventory records. If you are still using spreadsheets, this would be tricky since you will need to put in a considerable amount of manhours to individually verify the records with your results.

It would be best if you invest in decent inventory management software that can cater to your small business’s evolving needs. This will not only help in tasks like inventory reconciliation but also streamline your entire operations. In this case, you can simply use a mobile app to scan the barcodes on individual products, and the count will be automatically verified with the centralized database. 

That’s the power of cloud-based solutions for you! This is especially useful to small businesses as they run on tight budgets with limited human resources, making it difficult to perform such comprehensive exercises. Nonetheless, such software solutions provide a cost-effective alternative that helps SMBs scale up using best practices followed by their larger counterparts.

Figure Out The Discrepancies

Naturally, your next step is to figure out the missing goods. Before you reach a conclusion, you might want to verify the purchase and sales records to see if it actually reached your facility or was used without documenting the same. Also, internal stock transfer documents need to be checked. You might find undocumented items as well.

Depending on the analysis, you shall classify the missing items as:

• Stolen items
• Human error
• Miscellaneous reasons
• Damaged due to improper storage
• Faulty items supplied by the suppliers

The percentage of items that cannot be found/are no longer fit for use due to any of the above-mentioned reasons is attributed to inventory shrinkage.

Devise A Plan To Reduce Inventory Shrinkage

Once you have gone through an analysis of inventory shrinkage and the reasons that can be attributed to it, the next step is to write off the damages incurred due to the discrepancies. This is an important part of accounting and compliance, but on your end, it should act as a guide for your future policies. 

For instance, if you are witnessing a significant amount of damage to goods stored due to poor material handling, you should make provisions for the same. You should limit the access to your storage facility and improve the level of monitoring along with implementing proper synchronizing records with your order management and shipping management systems.

Curate An Inventory Reconciliation Plan For Future

As you conduct inventory reconciliations further, you will get feedback on the measures implemented, which can aid in meeting your targets more effectively. You can also use the cumulative data to understand the correlations between various events/periods of year and discrepancies. 

If you have a cloud-based inventory management system integrated with other modules like production, order, shipping, warehousing, and HR, you can also implement continuous counting. This will provide you with the highest levels of accuracy and transparency, aiding you in making smarter business decisions. 

Inventory reconciliation is one of the core processes undertaken by every business, and its importance shouldn’t be undermined due to any reason as such. It may seem to be a costly affair at first, but it gives you unparalleled confidence when dealing with situations like fluctuating marketing demand. 

It also aids in improving your operational efficiency while complementing the quality assurance measures. We hope you find this quick guide on inventory reconciliation insightful.

Best Practices For Organizing Inventory For Your Small Business

Organizing inventory needs technical know-how. This is probably one of the major realizations when running a small business. Placing inventory items and tracking them is more of an intuitive affair in an organization’s early days, but this becomes an area of interest as it matures.

Organizing your inventory right can boost your profitability by preventing stockouts, choking cash flow, piling up of unsold goods, and discrepancies. An inventory management software would come in handy in the process of organizing your inventory. It helps make operations systematic and reinforces them with automation capabilities that are closely knit with other related software packages.

In today’s article, we will have an overview of different best practices for organizing inventory as a small business. We all also understand how you can implement them depending on your sector and business size:

What Is Inventory Management In Context Of Small Businesses

Inventory management is part of the supply chain where an organization procures, stores, consumes and sells inventory through a systematic approach alongside other supply chain stakeholders. Inventory management is a relatively small-scale process for a small business with little to no dedicated mechanisms deemed as “standard operating procedures.” 

Generally, it revolves around making purchases against depletion in storage levels, intuitively storing them, and consuming the stored items in a planned manner. Also, the activities like sales forecasting, quality assurance, and coordinating with suppliers and OEMs. It aims to smoothen the inflow and outflow while reducing the financial liabilities involved throughout the process. 

Small businesses fall in the category of retail inventory management due to the relatively smaller order quantities and less pressure on the supply chain. The metrics like COGS (cost of goods sold), inventory shrinkage, and inventory turnover tend to be more important as far as their profitability is concerned. 

Let us have a look at the best practices that you can implement right away to make small business inventory management simpler yet effective:

Implement Proper Documentation For Product BOMs And Vendor Information

The first step to optimizing inventory management is to thoroughly document all information regarding your vendors and items used in the production process/selling. Creating a bill of materials (BOM) for each product is where the process begins. This data should also include the number of vendors available for each product.

Include their prices, pricing policies, payment terms and conditions, lead times, and interoperability as required. On top of that, you should also include data regarding their contact personnel, communication channels, and reviews if possible. You may also include their working hours and preferences for shipping partners. This gives you a better view of the alternate sources in a quick manner. 

It is recommended to document this information electronically, preferably on inventory management software instead of Spreadsheets. This is due to the fact that neither Spreadsheets provide you with advanced database management features, nor do they support true automation. 

Using a proper solution is in your best interests as it allows you to harness the architectural advantages leveraged by bigger firms. Thus, there’s no legitimate reason why you should miss on using inventory management software solutions as a small business.

Label Everything On Your Shelves

This piece of advice comes from every successful business that deals in physical goods on a large scale. Every business grows at its own pace, but the quantity of items sitting in your inventory outgrows your intuitive management capabilities beyond a certain threshold. 

A simple solution to all your stock-keeping problems comes in the form of barcodes. You can simply label every item on your store shelves in order to get an accurate view of your stock holdings. It also allows you to capture a lot more information apart from SKU numbers like when a certain item reaches your warehouse, any internal stock transfers, total time spent during storage, and if it needs to be used in due time. 

This way, you will be able to focus better on your core operations with automated workflows taking care of clerical formalities and alerting you when needed. Barcoding also helps track any faults in the production or storage in case you receive a complaint regarding the quality from your customers. 

This also helps the quick transfer of data from the physical world to the cyber systems and vice versa. Storing this data on your cloud-based inventory management software allows you to have quick projections of your inventory levels for various purposes and keeps production predictable. 

The same information is used to print picking labels and ultimately shipping labels, thus giving you an upper edge when it comes to supply chain management.

Reinforce Your Purchases With Analytical Data

To maintain a healthy threshold of inventory, you will need to get technical with your purchases. This will, of course, require you to have an automated software solution to keep an eye on the depleting stock levels. 

This includes running inventory analysis through methods like ABC analysis, cycle counts, and comparing it against the production rate. You also need to compare different pricing models based on order quantity and shipping terms to find the best ordering pattern for your small business.

Instead of buying raw materials and semi-finished goods out of impulse or in an unsystematic manner, going through a few reports helps you make calculated decisions. Data-driven decisions can make a huge impact on your bottom line as most small businesses fail to recognize the financial threats arising out of unplanned purchases.

Leverage Sales Forecasting

As the name indicates, sales forecasting refers to predetermining how many sales you are likely to make in a given timeframe in the future. This can be done using multiple methods, right from using past data combined with moving averages to use trend-based predictions. 

However, it is necessary that you use reliable data since any disparity can cause serious troubles that smaller businesses wouldn’t be able to absorb easily. A classic example of such facing issues is the bullwhip effect, where a member of the supply chain overestimates the demand, and subsequent stakeholders further exaggerate this estimation. 

The best way to safeguard your interests against such risks is combining your data with the insights available from specialized firms like Statista and Marketing Charts, along with the inputs on government policies. This way, you can use sales forecasting analysis to reverse engineer your procurement plan.

Make Inventory Consumption Process-Defined

Another valuable piece of advice for our readers is to redefine their inventory consumption patterns. Your inventory management software will come in handy in helping you with the prioritization of the items lying on your shelves for the production process. 

For instance, the consumables should be used within the stipulated time, or else they wouldn’t be fit for use or even turn hazardous if used. In such cases, making sure that the items stored in your warehouses are consumed within the ideal time frame allows you to minimize losses and maintain the quality of your finished products.

The same applies to all other types of goods stored, including the returned items. It is natural for you to resend the returned products if they are fit to use. This way, you can optimize the inventory consumption and make sure that your business stays on the right track.

You may also want to go for inking SLA contracts with your vendors and implement lean manufacturing concepts like Just-in-time (JIT) depending on how flexible your supply chain is.  

Go For Software Solutions For Purchase-Selling Documentation

Lastly, we would recommend you to transfer all your purchase and selling documents to software systems. This will allow you to follow all processes mentioned above accurately and improve record keeping. In our opinion, automation stands as the biggest advantage of going electronic when it comes to managing your small business’ transactions.

For instance, it can help you automatically reorder certain items (designated by you) to reduce the administrative workload on your staff. You can also slash off a significant amount of accounting processes on your shoulders, which is challenging for budding entrepreneurs. Integration with other software packages will also benefit you on multiple fronts apart from inventory management. 

We have gone through multiple best practices that you can easily implement to refine your small business’ inventory management, but there’s something common across all of them. They are all oriented towards laying a foundation for the competitive process management and implementation that is followed in bigger corporations. 

You will definitely need to evolve them as you grow but having the right starting position gives you tactical advantages when fighting growth-related troubles. We hope that the inventory management best practices mentioned in this article will help your small business grow.

Why Automate Your Inventory Management?

Increase Efficiency

Running an inventory or a warehouse involves a lot of manual labor. Most of these activities are repetitive and can be automated with the help of a powerful inventory management system.

Data shows that nearly 65% of the total warehouse budget is spent on labor alone. Companies can easily reduce this number by automating their redundant tasks.

Research shows that businesses can save between $6,000 and $72,000 by automating their inventory and warehouses.

Apart from all this, the most significant intangible advantage of warehouse automation is that it frees up your time and energy. This means that you can now double down on some of the more critical tasks at hand.

And as the adage goes, there is no gift like the gift of time.

Improve Scalability

A scalable inventory is an inventory that can react quickly to the increase and decrease of demand in the market. Having a scalable inventory enables the companies to update their stocks as soon as they sense a shift in the market.

Automation allows businesses to monitor the demand by tracking sales numbers closely. The inventory management software can crunch the data periodically and produce advanced analysis.

These analytical tools become the bedrock of developing effective decision-making capabilities.

Mitigate Human Errors

Even the most thorough of the manual processes still have to keep a little room for error. While dealing with inventory and warehousing, these errors may prove to be expensive in the short run.

Automation removes the need for human intervention from most of the processes. This moves up the efficiency of your inventory by several notches.

Improve Customer service

In the world that we live in, consistent lackluster customer service is akin to the proverbial death knell ringing in the distance. On the other hand, excellent customer service is the best way to inspire loyalty among your users.

Some of the most common customer grievances in the eCommerce space are about lack of communications. Not getting timely updates about their orders, ordering a product, and then finding out later that it’s gone out of stock, etc., pushes even the most loyal customers to look for other options.

These issues occur when a company is trying to manage these activities either manually or via a mix of software.

An inventory management software streamlines all these activities. It allows the company to perform these tasks with a single, unified software.

With automation, your store will display the exact amount of products available. You can also automate the inventory replenishment process.

Customer communication becomes seamless by setting automation triggers during the entire delivery process.

Just a few clicks and never again do you have to worry about your sales plummeting because of unhappy customers.

Mechanisms For Theft Control

Theft is an unfortunate reality, especially in places like warehouses. There isn’t a lot of surveillance, and access to high-priced products is the easiest. One may be confident about their team, but there must be a mechanism for necessary checks and balances.

By automating your inventory and warehouse management, you’re able to monitor your inventory levels in real-time. When paired with sales data, these numbers can give you a highly accurate picture of your warehouses.

Real-time tracking allows you to locate these anomalies quickly in case the numbers don’t add up.

Inventory Management Frequently Asked Questions (FAQs)

What does inventory management software do?

Inventory management software is a kind of software that is utilized to track all the levels of inventory, deliveries, and sales. Also, the manufacturing industry opts for using inventory management software to build work orders, production-related documents, and bill of materials. 

How is inventory management software different from other supply chain management software?

Inventory management software manages all the stock that is present in any company.  Whereas, supply chain management software handles the process from supplier for delivering the product straight to the customer.

What are the basic advantages of using inventory management software?

The basic advantages of using inventory management software are defined below – 

• Easily reach the decided service you aim for in just one replenishment cycle, i.e., Higher Service = Fewer Stockouts = Higher Sales.
• It helps in reducing the whole capital that is tied up in the stock and helps in freeing up the cash flow. 
• It will save your time and money to automate the procurement and replenishment process.

What is the main difference between inventory management software and a warehouse management system?

Typically, a WMS (Warehouse Management System) controls the storage and the movement of materials present in the warehouse. Also, it opts for managing and optimizing the warehouse things like storing, moving, and tracking the whole inventory. On the other hand, inventory management software helps optimize how many products are required to keep in the stock and how much quantity. Inventory management systems help maintain a whole record of the inventory and ensure that future demand for the product should be fulfilled as per the plan. 

What is needed to integrate inventory management software?

Usually, the three crucial things to consider are training, data quality, and integration. 

Inventory management software can get integrated with the current ERP systems at a huge cost. You need to find out the capabilities of diverse system providers for integrating or transferring data between the ERP and inventory management solutions.

It requires proper training in learning the inventory management methodologies before you start handling the software. Training is essential because the system is a bit advanced to understand without knowledge, and one must know everything before using it. 

How is an inventory management system helping e-commerce businesses?

An inventory management system is developed by expert developers. The whole system is designed to help e-commerce businesses effortlessly. It deals with all types of hurdles and obstacles that repeatedly occur in the inventory and order processes. The whole data gets synchronized all over the board, and the chances of errors become zero.

What are the top Inventory management features?

Below is the list of top inventory management features – 

• Cycle counting keeps on checking the inventory counts on regular basis.
• The date, time, and reason of every inventory movement are logged in and present for viewing. Hence, the complete journey of the product from manufacturing to delivery at the customer destination can be tracked easily. 
• Sold products are adjusted for prioritizing the cycle count.
• Inventory software offers a full built-in barcoding system, permits you to build, assign, print, and scan barcodes for all inventory movements. 
• Inventory availability is synchronized and reflected across the connected stores. 
• Manages custom prices for every product.